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ninth edition

STEPHEN P. ROBBINS MARY COULTER

Chapter Decision-Making:
6 The Essence of
the Managers Job

2007 Prentice Hall, Inc. PowerPoint Presentation by Charlie Cook


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LEARNING OUTLINE
Follow this Learning Outline as you read and study this chapter.

The Decision-Making Process


Define decision and decision-making process.
Describe the eight steps in the decision-making process.

The Manager as Decision Maker


Discuss the assumptions of rational decision making.
Describe the concepts of bounded rationality, satisficing,
and escalation of commitment.
Explain intuitive decision making.
Contrast programmed and nonprogrammed decisions.

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L E A R N I N G O U T L I N E (contd)
Follow this Learning Outline as you read and study this chapter.

The Manager as Decision Maker (contd)


Contrast the three decision-making conditions.
Explain maximax, maximin, and minimax decision choice
approaches.
Describe the four decision making styles.
Discuss the twelve decision-making biases managers
may exhibit.
Describe how manager can deal with the negative effects
of decision errors and biases.
Explain the managerial decision-making model.

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L E A R N I N G O U T L I N E (contd)
Follow this Learning Outline as you read and study this chapter.

Decision Making for Todays World


Explain how managers can make effective decisions in
todays world.
List six characteristics of an effective decision-making
process.
Describe the five habits of highly reliable organizations.

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Decision Making
Decision
Making a choice from two or more alternatives.
The Decision-Making Process
Identifying a problem and decision criteria and
allocating weights to the criteria.
Developing, analyzing, and selecting an alternative
that can resolve the problem.
Implementing the selected alternative.
Evaluating the decisions effectiveness.

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Exhibit 61
The Decision-Making Process

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Step 1: Identifying the Problem
Problem
A discrepancy between an existing and desired state
of affairs.
Characteristics of Problems
A problem becomes a problem when a manager
becomes aware of it.
There is pressure to solve the problem.
The manager must have the authority, information, or
resources needed to solve the problem.

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Step 2: Identifying Decision Criteria
Decision criteria are factors that are important
(relevant) to resolving the problem.
Costs that will be incurred (investments required)
Risks likely to be encountered (chance of failure)
Outcomes that are desired (growth of the firm)

Step 3: Allocating Weights to the Criteria


Decision criteria are not of equal importance:
Assigning a weight to each item places the items in
the correct priority order of their importance in the
decision making process.
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Exhibit 62 Criteria and Weights for Computer Replacement Decision

Criterion Weight
Memory and Storage 10
Battery life 8
Carrying Weight 6
Warranty 4
Display Quality 3

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Step 4: Developing Alternatives
Identifying viable alternatives
Alternatives are listed (without evaluation) that can
resolve the problem.

Step 5: Analyzing Alternatives


Appraising each alternatives strengths and
weaknesses
An alternatives appraisal is based on its ability to
resolve the issues identified in steps 2 and 3.

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Exhibit 63 Assessed Values of Laptop Computers
Using Decision Criteria

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Step 6: Selecting an Alternative
Choosing the best alternative
The alternative with the highest total weight is
chosen.

Step 7: Implementing the Alternative


Putting the chosen alternative into action.
Conveying the decision to and gaining commitment
from those who will carry out the decision.

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Exhibit 64 Evaluation of Laptop Alternatives
Against Weighted Criteria

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Step 8: Evaluating the Decisions
Effectiveness
The soundness of the decision is judged by its
outcomes.
How effectively was the problem resolved by
outcomes resulting from the chosen alternatives?
If the problem was not resolved, what went wrong?

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Exhibit 65 Decisions in the Management Functions

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Making Decisions
Rationality
Managers make consistent, value-maximizing choices
with specified constraints.
Assumptions are that decision makers:
Are perfectly rational, fully objective, and logical.
Have carefully defined the problem and identified all viable
alternatives.
Have a clear and specific goal
Will select the alternative that maximizes outcomes in the
organizations interests rather than in their personal interests.

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Exhibit 66 Assumptions of Rationality

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Making Decisions (contd)
Bounded Rationality
Managers make decisions rationally, but are limited
(bounded) by their ability to process information.
Assumptions are that decision makers:
Will not seek out or have knowledge of all alternatives
Will satisficechoose the first alternative encountered that
satisfactorily solves the problemrather than maximize the
outcome of their decision by considering all alternatives and
choosing the best.
Influence on decision making
Escalation of commitment: an increased commitment to a
previous decision despite evidence that it may have been
wrong.
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The Role of Intuition

Intuitive decision making


Making decisions on the basis of experience, feelings,
and accumulated judgment.

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Exhibit 67 What is Intuition?

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Source: Based on L. A. Burke and M. K. Miller, Taking the Mystery Out of Intuitive
Decision Making, Academy of Management Executive, October 1999, pp. 9199.
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Types of Problems and Decisions
Structured Problems
Involve goals that clear.
Are familiar (have occurred before).
Are easily and completely definedinformation about
the problem is available and complete.

Programmed Decision
A repetitive decision that can be handled by a routine
approach.

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Types of Programmed Decisions
Policy
A general guideline for making a decision about a
structured problem.
Procedure
A series of interrelated steps that a manager can use
to respond (applying a policy) to a structured problem.
Rule
An explicit statement that limits what a manager or
employee can or cannot do.

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Policy, Procedure, and Rule Examples
Policy
Accept all customer-returned merchandise.

Procedure
Follow all steps for completing merchandise return
documentation.

Rules
Managers must approve all refunds over $50.00.
No credit purchases are refunded for cash.

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Problems and Decisions (contd)
Unstructured Problems
Problems that are new or unusual and for which
information is ambiguous or incomplete.
Problems that will require custom-made solutions.

Nonprogrammed Decisions
Decisions that are unique and nonrecurring.
Decisions that generate unique responses.

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Exhibit 68 Programmed versus Nonprogrammed Decisions

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Decision-Making Conditions
Certainty
A situation in which a manager can make an accurate
decision because the outcome of every alternative
choice is known.
Risk
A situation in which the manager is able to estimate
the likelihood (probability) of outcomes that result
from the choice of particular alternatives.

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Exhibit 69 Expected Value for Revenues from
the Addition of One Ski Lift

Expected
Expected Probability = Value of Each
Event Revenues Alternative
Heavy snowfall $850,000 0.3 = $255,000
Normal snowfall 725,000 0.5 = 362,500
Light snowfall 350,000 0.2 = 70,000
$687,500

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Decision-Making Conditions
Uncertainty
Limited information prevents estimation of outcome
probabilities for alternatives associated with the
problem and may force managers to rely on intuition,
hunches, and gut feelings.
Maximax: the optimistic managers choice to maximize the
maximum payoff
Maximin: the pessimistic managers choice to maximize the
minimum payoff
Minimax: the managers choice to minimize maximum regret.

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Exhibit 610 Payoff Matrix

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Exhibit 611 Regret Matrix

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Decision-Making Styles
Dimensions of Decision-Making Styles
Ways of thinking
Rational, orderly, and consistent
Intuitive, creative, and unique

Tolerance for ambiguity


Low tolerance: require consistency and order
High tolerance: multiple thoughts simultaneously

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Decision-Making Styles (contd)
Types of Decision Makers
Directive
Use minimal information and consider few alternatives.
Analytic
Make careful decisions in unique situations.
Conceptual
Maintain a broad outlook and consider many alternatives in
making decisions.
Behavioral
Avoid conflict by working well with others and being receptive
to suggestions.

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Exhibit 612 Decision-Making Matrix

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Exhibit 613 Common Decision-Making Errors and Biases

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Decision-Making Biases and Errors
Heuristics
Using rules of thumb to simplify decision making.

Overconfidence Bias
Holding unrealistically positive views of ones self and
ones performance.

Immediate Gratification Bias


Choosing alternatives that offer immediate rewards
and that to avoid immediate costs.

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Decision-Making Biases and Errors
(contd)
Anchoring Effect
Fixating on initial information and ignoring subsequent
information.
Selective Perception Bias
Selecting organizing and interpreting events based on
the decision makers biased perceptions.
Confirmation Bias
Seeking out information that reaffirms past choices
and discounting contradictory information.
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Decision-Making Biases and Errors
(contd)
Framing Bias
Selecting and highlighting certain aspects of a
situation while ignoring other aspects.
Availability Bias
Losing decision-making objectivity by focusing on the
most recent events.
Representation Bias
Drawing analogies and seeing identical situations
when none exist.
Randomness Bias

2007Creating unfounded
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Decision-Making Biases and Errors
(contd)
Sunk Costs Errors
Forgetting that current actions cannot influence past
events and relate only to future consequences.
Self-Serving Bias
Taking quick credit for successes and blaming outside
factors for failures.
Hindsight Bias
Mistakenly believing that an event could have been
predicted once the actual outcome is known (after-
the-fact).
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Exhibit 614 Overview of Managerial Decision Making

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Decision Making for Todays World
Guidelines for making effective decisions:
Understand cultural differences.
Know when its time to call it quits.
Use an effective decision-making process.
Habits of highly reliable organizations (HROs)
Are not tricked by their success.
Defer to the experts on the front line.
Let unexpected circumstances provide the solution.
Embrace complexity.
Anticipate, but also anticipate their limits.
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Characteristics of an Effective Decision-
Making Process
It focuses on what is important.
It is logical and consistent.
It acknowledges both subjective and objective thinking
and blends analytical with intuitive thinking.
It requires only as much information and analysis as is
necessary to resolve a particular dilemma.
It encourages and guides the gathering of relevant
information and informed opinion.
It is straightforward, reliable, easy to use, and flexible.

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Terms to Know
decision policy
decision-making process unstructured problems
problem nonprogrammed decisions
decision criteria certainty
rational decision making risk
bounded rationality uncertainty
satisficing directive style
escalation of commitment analytic style
intuitive decision making conceptual style
structured problems behavioral style
programmed decision heuristics
procedure business performance
rule management (BPM) software

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